Janet Yellen said it is appropriate for US
central bankers to “proceed cautiously” in raising interest rates
because the global economy presents heightened risks. Her speech made a strong case for running the
economy hot to push away from the zero boundary for the FMOC's target rate. “I consider it appropriate for the
committee to proceed cautiously in adjusting policy,” Yellen said. “This caution is especially
warranted because, with the federal funds rate so low, the FOMC’s
ability to use conventional monetary policy to respond to economic
disturbances is asymmetric.” Yellen said
the FOMC “would still have considerable scope” to ease policy if rates
hit zero again, pointing to forward guidance on interest rates &
increases in the “size or duration of our holdings of long-term
securities.” “While these
tools may entail some risks and costs that do not apply to the federal
funds rate, we used them effectively to strengthen the recovery from the
Great Recession, and we would do so again if needed,” she added. Yellen mentioned 2 risks in her speech. Growth in
China is slowing & there is some uncertainty about how the
nation will handle the transition from exports to domestic sources of
growth. A 2nd risk is the outlook for commodity prices, & oil in
particular. Further declines in oil prices could have “adverse” effects
on the global economy. Since the Mar meeting, Fed
officials have seen more evidence that the pace of domestic growth may
be slowing. GDP decelerated to 1.4% pace in Q4, while the Atlanta Fed's GDPNow estimate for Q1 is 0.6%, partly due to slower rates of consumer spending growth.

Oil prices fell, reflecting growing concerns that a 2-month rally may be in danger of fizzling, while analysts forecast
another rise to record levels for US crude stockpiles. Oil has risen by more than 45% since
mid-Feb ahead of a meeting next month of the major
producers to discuss an output freeze to support prices. There is
growing skepticism about the outcome of the meeting. OPEC & other major suppliers, including Russia, are to meet on
Apr 17 in Doha to discuss an output freeze aimed at bolstering prices. But with ballooning global inventories, signs some OPEC members
are losing market share, plus little evidence of a strong pick-up in
demand, analysts say oil is likely to trade in a range. Data yesterday from the InterContinental Exchange showed
speculators hold the largest net long position in Brent futures on
record. US commercial crude oil stockpiles were expected to have
reached record highs for a 7th straight week, while refined product
inventories likely fell.

Iranian pres Hassan Rouhani unexpectedly canceled a state visit
to Austria this week, citing security reasons. Iran said the decision about the trip,
scheduled for Wed & Thurs was mutual. He had been
scheduled to meet Austrian pres Heinz Fischer & other Austrian
leaders, in only his 2nd visit to Europe, after visiting Rome &
Paris in Jan. "Every
nation has to decide for itself about the safety and security of its
head of state,” Fischer said. “The quality of the
relations with Iran won’t be touched by this delay and the cooperation
in the realm of politics, business, culture and science will be
continued in a comprehensive manner." Austria's
interior ministry had "no concrete signs of a security threat" & the
preparation for Rouhani's visit had been "completely ordinary and
routine," a spokesman said. Even after recent terror attacks in Brussels, there is "no
concrete threat situation" in Austria, he adeded. Iran TV didn't mention security concerns. The
visit was postponed "based on mutual agreement in order to allow better
planning and coordination from both sides," the official news agency IRNA
reported. The postponement appeared to catch Iranian media by
surprise as most had prepared special sections detailing trade links
between the 2 nations.

The easy money policy by the Fed will continue for some time to come. That mirrors actions by other central reserve banks. At the same time gold & Treasuries were bid higher. This is money betting against a rising stock market. The disconnect can not last. One week after the Brussels attack, Europe is seeing a repercussion with the cancellation of a high profile trip. The rise in terrorism is already starting to hurt the euro economy. Dow is up a startling 1.6K+ (10%) since the lows in mid Feb & is up about 200 YTD (i.e. Q1). In the next 2 days the stock market will close out the qtr with volatile trading.